ICRA Forecasts 8% Surge in Tyre Consumption in India for FY2024

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ICRA is maintaining its projection that domestic tyre consumption will expand by 6–8% YoY during the fiscal year 2024. This is due to the robust demand coming from the original equipment manufacturer (OEM) sector as well as an anticipated rebound in replacements. In fiscal year 2024, a better product mix and range-bound input costs would likely result in a 200–300 basis point increase in profits. As a result of the solid prospects for the vast majority of product categories, the Original Equipment Manufacturer (OEM) category is anticipated to expand by 7–9% year on year in FY 2024. Passenger vehicle (PV) demand is expected to be driven chiefly by consumer preferences for personal mobility as well as rising incomes that are available for discretionary spending.

 

Although some sluggishness was noticed in the first quarter due to pre-buying in anticipation of the transition to BS-6 2.0 emission requirements, the market for Commercial Vehicles (CV) continues to be maintained by activities related to infrastructure and construction. The recovery of demand in the two-wheeler sector has been slow, and the performance of the monsoon will determine the momentum in the following quarters.

 

ICRA anticipates a rise in the replacement market in the low to mid-single digits in either FY 2024 or beyond. In fiscal year 2024, volume growth is projected to see some level of stability for the first time after two years of pent-up demand and a rise in pricing. In the most recent two to three months, there has been a decrease in demand to some degree; however, this trend is anticipated to reverse itself as urban and rural emotions continue to improve. On the other hand, we will continue to pay close attention to how an El Nino event and an unfavourable monsoon distribution may affect demand in rural areas.

 

In the fiscal year 2023, the total volume of tyres exported had a year-over-year decrease of 7% due to a decrease in demand from important countries as a result of the economic slowdown and inflationary pressure. ICRA forecasts that there will be only modest growth in the demand for exports over the next couple of quarters.

 

“Following a sharp 26% expansion in FY 2022, revenues of the domestic tyre industry (consolidated for ICRA’s sample of seven leading tyre manufacturers) witnessed a healthy 19.5% growth in FY 2023,” stated Nithya Debbadi, Assistant Vice President and Sector Head, Corporate Ratings, ICRA. This was made possible by robust demand from original equipment manufacturers (OEMs), moderate demand from replacement customers, and advantageous realisations as a result of an improved product mix and a pass-through of the increase in raw material costs. We anticipate that year-over-year revenue growth will slow to between 5% and 7% in FY 2024, led by a 6-8% YoY growth in domestic tyre demand, a potential export reduction, and flat average realisations.

 

“During the fiscal year 2023, the operational margins of the industry reached 11%, but the net margins only reached 4%. The margins, which were hit by increased input prices and growing freight costs in FY 2022 and H1 FY 2023, showed a significant rebound in H2, with prices of natural rubber and crude oil derivatives beginning to decrease in July 2022. This helped to offset the effects of higher input prices and rising freight costs in FY 2022 and H1 FY 2023. ICRA anticipates that margins will increase by 200–300 basis points in FY 2024 as a result of improved product mix and range-bound input prices, which will boost the overall profit profile of industry participants,” Debbadi noted.

 

Regarding The ICRA:

ICRA Limited is a financial pillar in India, and its compelling role as the country’s preeminent credit rating agency draws a lot of attention to itself. This powerful organisation was established in 1991, and it has the authority to evaluate the creditworthiness of both enterprises, financial organisations, and debt issuers. The ICRA, armed with keen financial acumen, probes deep into their economic souls to uncover their underlying possibilities and hazards. Investors, lenders, and stakeholders who are ready to traverse the maze of financial uncertainty look to the thorough credit ratings provided by ICRA for direction. ICRA’s ratings, much like those of a knowledgeable oracle, decipher the riddle of risk and provide decision-makers with the knowledge they need to act. ICRA is a towering presence in the broad terrain of the Indian financial industry, serving as a reliable compass that directs economic voyagers towards the shores of prosperity.



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